Inter-Meeting Rate Cut Signals Economic Problems Announces The Shepherd Investment Strategist

Business Wire, April 19, 2001

Business Editors

SPOKANE, Wash.--(BUSINESS WIRE)--April 19, 2001

The Federal Reserve's unexpected half-point cut to the federal funds rate target yesterday gave the Nasdaq and the Dow Jones industrial average much-needed gains, but one prominent market strategist is warning investors not to get bullish just yet.

Jim Shepherd, founder of The Shepherd Investment Strategist (http://www.jastmts.com) and a veteran investment advisor with nearly 20 years' experience in the markets, said today that the Fed lowered the interest rate outside of its regularly scheduled meetings because previous rate cuts have been unsuccessful in heading off the possibility of a recession.

Shepherd added that yesterday's rate cut should come as no surprise to those who are watching the performance of the economy rather than the performance of Wall Street in the financial media.

"This is the Fed's way of saying that the economy is continuing to slow very rapidly in spite of previous attempts to halt the slide, while world economic slowdowns are beginning to have a negative effect here at home and a negative wealth effect is now being reflected in a declining business outlook," said Shepherd.

Although the rate cut will undoubtedly have another short-term positive effect on the equity markets, Shepherd pointed out that this action underscores the inherent and growing economic problems faced by the U.S.

"This should be viewed as good news only in the short term. In the overall scheme of things, however, this move is indicative of the concern of the Federal Reserve over growing problems in the economy," he said. "Increases in the retail prices of gasoline, electrical energy and natural gas are having an inflationary effect on the economy that has not gone unnoticed by the Fed. The combination of these inflationary pressures, a slowing economy and rising debt problems has to be particularly disturbing to the members of the Federal Reserve, making their decisions increasingly difficult."

Compounding the problem, the Federal Reserve Bank of Cleveland reports that the average consumer is now carrying a monthly credit card balance of $5,800 - which means debtors making only minimum monthly payments would take over 30 years to pay off their credit card debts.

Credit counselors and bankruptcy trustees in many states are seeing a dramatic increase in clients coming to them with serious debt servicing problems.

"The amount of debt, currently at an all-time high, has to be another concern of the Fed," said Shepherd. "In the last few years the public has, in many cases, been mortgaging their homes up to 125% of appraised values to continue a wild spending spree. The downside of that spending is now showing up in a rapidly increasing debt servicing problem."

Shepherd predicts that rapidly rising layoff statistics will soon start to show up in the unemployment numbers that have been fairly benign to date. "The Fed is no doubt alarmed by several factors that are now starting to show up in the economic data it is examining," he said.

Shepherd himself has seen positive gains in the slowing economy, having advised subscribers of The Shepherd Investment Strategist in late 1999 to exit the stock market and to purchase 30-year T-bonds - avoiding the large-scale losses in the stock market carnage that followed and increasing their portfolios by an average of 23% through the end of February of this year.

Shepherd's subscribers are currently awaiting his proprietary Model's next signal indicating either an 'all clear' or a further significant drop in the market.

URL: http://www.jasmts.com